Blog Post

Insurance Calculators Miscalculate

by Thomas Zuo

You have probably seen insurance calculators online when searching for information about home insurance. These calculators are supposed to help you know exactly how much insurance to buy to protect your home. Unfortunately, while they may give you some basic indications or guidelines, they can also cause a lot of problems for homeowners who rely too much on them. Just as with other online calculators (such as those that supposedly tell you how much your house is worth), these should be viewed merely as tools in the process. There’s really no substitute for having a professional give you sound advice based on an inspection of your home.

One of the most important factors in purchasing home insurance is understanding exactly how much insurance is enough. This is a quandary for many people as they are not in the business of building homes. That’s certainly understandable and, as a result, people have a tendency to look to any resources they can find that will help with the process. A common solution is to use a “rule-of-thumb” guide that is based on the square footage of the home. A friend who has a friend in the construction business might tell you that a certain dollar amount per square foot is a good measurement of replacement cost.

If you use an online calculator, it’s not terribly different from that process. While the online calculator might have some more sophisticated algorithms programmed into it to take account of extra variables, you would still be relying on something that is fairly generic. It doesn’t necessarily mean that you should completely avoid any sort of online estimation, as they can be good tools to help you gauge if you’re in the ballpark on the replacement cost. In fact, if you can find more than one, it’s sometimes helpful just to run the numbers to see how much they do or do not fluctuate. That might give you some insight into how effective they really are.

Ultimately, the best way to calculate your replacement cost is to ask a professional builder to assess your home. Sometimes your insurance company may also wish to perform an inspection or appraisal. These reviews will better help you ascertain the proper replacement cost and how much to insure. While you can easily over insure just to be on the safe side, it doesn’t provide you with any actual benefit in the event of a loss. It will also result in higher insurance premiums and can sometimes even be a hindrance to finding coverage. Insurance companies sometimes have guidelines for the types and values that they are allowed to insure. If you bump up the value of your home too much, you can potentially put yourself in a category that is uninsurable by certain insurers.

Even though it’s never a good idea to underinsure your home, it’s also not a benefit to buy too much insurance. Solely relying on an online calculator to tell you how much to insure leaves too much to chance and you can find yourself with more negatives than positives in the process. Instead, consider using the online calculator as a tool instead of the only solution.